How smaller, commercial real estate businesses can take advantage of historically low interest rates

Homeowners aren’t the only ones who stand to benefit from low interest rates that allow big savings in refinancing. Small business owners, who have valiantly fought through the difficulties of COVID-19, also have an opportunity to find new value with their real estate investments, especially given new legislation.?

Here are three opportunities to explore.

Refinancing small business loans

Borrowers who are paying off Small Business Administration (SBA) 7a loans can take advantage of new refinancing rules that became effective in July . Borrowers can use SBA 504 loans as a refinance option after only six months, reduced from two years. The new rules also benefit borrowers by giving the option to refinance up to 100% of a project’s debt, up from the previous limit of 50%. Additionally, new rules remove a requirement that borrowers must be current on all payments for at least a year before filing an SBA application.

SBA 504 loans are superior for the borrower because they require as little as 10% down and have a fixed interest rate with no outside collateral necessary—unlike 7a loans, which have floating rates—and tend to have lower fees than 7a loans. Another major advantage of 504 loans is borrowers can cash out up to 20% of their property value for working capital needs. Prepayment penalties for 504 loans are also typically lower than they are for 7a loans. With rates at historic lows, now is the time to refinance 7a loans or apply for a new 504 loan.?

Liberty SBF recently facilitated the refinance of a 59-room limited-service hotel near Salt Lake City International Airport. The sponsor acquired the property two years ago for $1.65 million and executed a $600,000 property improvement plan (PIP). Since the hotel had a strong cash flow after the improvements, Liberty was able to provide $1 million of cash-out utilizing a high-leverage SBA 504 loan restructure.?

Because of Liberty SBF’s strong execution and quick turnaround, the sponsor worked with Liberty SBF on two other transactions.?

Bridge loans

Liberty SBF is working with broker partners to facilitate bridge loans as more companies and investors look to acquire real estate or gain capital after dealing with the brunt of the pandemic. Banks typically provide bridge loans in the $1-3 million range and institutional bridge lending usually starts at $10 million.?

Fitting into this mid-range gap, Liberty SBF specializes in loans from $2-10 million, helping borrowers accomplish their goals with both recourse and non-recourse bridge loans.?

Liberty SBF recently facilitated a 60% loan-to-value (LTV) refinance for a 71-unit, Class B multifamily community in West Philadelphia. The sponsor had a strong net worth and liquidity and was experienced as a multifamily property owner in Philadelphia.?

Since the initial loan was only 47.5% LTV, Liberty SBF was able to provide a $1.3 million upsize in the loan three months after closing, which the sponsor used to purchase another property.

Liberty SBF closed the original loan in under 30 days and the upsizing in less than two weeks.

Conventional loans

As small businesses continue to grow their real estate footprints and execute strategic plans, conventional loans can be a great solution. This is particularly useful for acquisition and/or refinance of owner-occupied estates and hospitality, multi-use, and special purpose properties.

Liberty SBF can offer conventional loans up to $15 million for qualified borrowers.?

The sponsor of a 69-room, limited-service hotel in the Minneapolis/St. Paul metropolitan statistical area (MSA) recently secured a $2.2 million, 100% loan-to-cost (LTC) refinancing loan with Liberty SBF. The sponsor refinanced to buy the property since it was the only hospitality asset in a 17-property portfolio that was acquired the previous year.?

The property had undergone a significant PIP in the two years prior to acquisition and only had one year of positive debt service coverage ratio at close, yet Liberty SBF was still able to facilitate the deal in less than 45 days.

We’re ready to help

With more than 50 years of business lending and investment experience, the Liberty SBF team has set itself apart with its speed and certainty of execution. Liberty SBF has funded over 25,000 loans totaling over $1 billion to businesses looking to survive the trying times over the past year, and is still here to help turn dreams into reality. Since 2011, Liberty SBF has funded $2 billion in commercial real estate and business loans directly from its balance sheet, and is poised to help even more businesses secure financing through these three opportunities.?

Contact us today to learn more about our broker incentive program and receive quotes on your upcoming deals.??